The Free and Clear Real Estate Plan

At Coachcarson.com, I write a lot about financial independence (FI). I also write about real estate investing, which is my favorite vehicle to get to financial independence.

With real estate, I have found that a very simple goal can help you reach financial independence faster, safer, and with more certainty than with any other path. I call this simple goal the free and clear real estate plan.

Let’s begin with an explanation.

What is the Free and Clear Real Estate Goal?

The free and clear goal is to eventually own a relatively small, easy-to-manage number of residential real estate properties free and clear of all debt.

Would $72,000 per year coming in passively, consistently, year after year change your life?

If only a few hours per week doing administrative work took care of your financial needs (yes, even managing 10 houses yourself is a VERY part-time job), could you figure out what to do with your time? Of course, time is the ultimate currency.

Even if $72,000 per year doesn’t work for you, just add a few more houses until you hit your number. Either way, I think you’ll agree that the end result is worth while.

The Free and Clear Plan is a S.M.A.R.T. Goal

Financial goals are best when they are S.M.A.R.T. (Specific, Measurable, Achievable, Relevant, and Timely). S.M.A.R.T. is best because it makes the path towards the goal much more achievable.

Specific

When you set a goal to own 10 houses free and clear of all debt, the goal is very specific. The goal is not 9 or 11. The goal is 10.

Whether 9, 10, or 11 is the right number is not important. The energy and enthusiasm created from a clear goal is what matters. That clarity is like a compass on a sailboat that continues to bring you back on course during inevitable storms and detours.

Measurable

The specific number of houses is also measurable so that you can track your progress. When you get 1 free and clear rental, you are 1/10th of the way to your goal. You can literally check this off on a chart.

I have found this visible, measurable progress to be extremely satisfying. It creates even more enthusiasm and energy to continue pushing forward.

Achievable

10 houses are significant financially, but they are a still relatively small number. Small translates into achievable. Big dreams are wonderful, but until you believe them they will never come true.

Your own belief is really the biggest obstacle to achieving something worthwhile. In Think and Grow Rich Napoleon Hill famously wrote “Whatever the mind can conceive and believe, it can achieve.”

For those high achievers, small and simple goals are not selling yourself short. A successful goal just needs to meet your personal needs. Leave the excessive goals to others who need validation by impressing themselves and others.

Relevant

As I’ve shown with the $84,000 per year in passive income, this goal is also very relevant for your own Destination of Financial Independence. When your financial needs are taken care of, you can explore, grow, contribute, and discover what else you were put on this earth to do!

Timely

Finally, a timely goal can keep you moving forward. I don’t think you need to stress about an exact date (like December 31, 2020), but a rough timeline will certainly help.

Even starting from scratch, a timeline of 15 years is very reasonable to reach the final free and clear goal if you are focused and persistent. But, If you happen to be a couple of years late, it won’t make a big difference in the long run. Just have fun with it.

What Is Your Free and Clear Goal?

Ultimately this goal is about you. So I have some questions for you to ponder:

What S.M.A.R.T. goal will meet your needs?

Can you get excited about this destination?

Do you believe that you can achieve it? If not, chop the goal into smaller pieces until you can believe it.

Are you willing to commit yourself to a timeline?

How can you start moving forward … today?!

I believe financial independence is a destination worthy of your time and effort.

The ultimate payoff is personal freedom and autonomy. It’s about more than money. With these rewards, you can finally break the shackles that chain you to a job or a way of life that is not fulfilling.

I also believe real estate investing is a vehicle that can carry you to this worthwhile financial destination better than any other.

The journey isn’t easy. It won’t happen overnight. But, with vision and persistence you can do it, just like many have before you.

Thank you for letting me be your coach in a small way on your own personal journey.

Is financial independence a goal you have? Will the free and clear plan help you achieve it? What does your free and clear plan look like?

Related

Comments

CC,
Nice article. Sometimes I look at my rental property and think about trying to pay off the loan. I owe about $165k and it’s worth close to $300. Part of me wants to just let it ride and the other half wants to sell it and invest in better cash flowing properties. The interest rate is just 3.75% Having not debt on it would really lower the stress level and risk (not that it’s very high right now).
-RBD

Thanks for the comment RBD,
Yeah it’s a dilemma a lot of real estate investors face. If and when to pay off the loan. There is certainly a strong mathematical argument for keeping a 3.75% fixed interest loan in place. It’s a hedge against inflation, you could probably get a higher return somewhere else, etc.

But for me it comes down to what stage I’m in. During early growth phase, I lean towards keeping it in place. There are so many high-return places to put your money at that time. But at some point the scales tip and I have enough gross income coming in, and free time, low-stress, and flexibility become higher and higher priorities. When that became the case, I started prioritizing debt pay down over growth even when I could keep growing my portfolio more by not doing that.

I also subscribe to the idea of plateaus during your climb to financial independence or retirement. The peak may be full retirement. An early plateau may be $1,000/month income from my rentals. If I can pay off a couple, get that guaranteed income and lower stress, it may allow me to take a sabatical/mini-retirement and then come back to start growing again after.

Thanks for sharing your thoughts. I know a lot of people debate the same thing.

Coach,
Great post. I heard you on mad fientist, and came over here today. This is my first post, but plan to read through your whole site.
Question: in your free and clear goal, would you consider trading up your properties to apartments or remain in SFHs? I’ve heard it both ways, but am interested to hear your stance.
Thanks, and I’ll see you around the blog!

Hey Sean,
Sorry I missed this comment earlier. I’m personally flexible with the application of this principle. Houses vs apartments (or even other assets like commercial property) depends so much on the location and your personal situation. I think houses are preferable if possible because they’re simple and conservative, but apartments can do great too.

[…] could survive at a certain level only using the production of your investments. For example, your net income from rental properties would cover your personal overhead. Or with more traditional investments like stocks and bonds, […]

[…] The free and clear goal begins by figuring out how much money you need to live. Then you figure out how many rental properties, free and clear of all debt, you need in order to pay for those living expenses. […]

Top Resources

I have 85 recommended tools for you to become better as a real estate investor. My first priority is helping you, my reader, to learn and improve. These tools and resources helped me and I'm hopeful they will help you too.

Affiliate Disclosure

I recommend books, tools, and other resources from time to time using links within my articles. In some cases these links are affiliate links. This means that if you click through and purchase, my company will receive a commission on the sale. These commissions help pay the bills around here (and avoid the need for spammy ads). But keep in mind that I only recommend a product or service if I’ve used it and personally believe in it. And I’ll recommend something that’s good whether it has an affiliate link or not. My first priority is helping you, my reader, to learn and improve.